Three tenants who live in the Woodland Park Apartments in East Palo Alto filed a class-action lawsuit on Wednesday, Sept. 3, against Equity Residential (EQR), one of the nation's most powerful landlords and the largest residential property owner in the city.
The David-versus-Goliath lawsuit -- which was filed in Alameda County Superior Court by tenants Javanni Munguia-Brown, Angelina Magana and Norma Rodriguez -- alleges that Equity makes unlawful profits from tenants by charging excessive late-fee penalties of $50 or $100, even when the tenant pays rent only one day past the grace period.
The lawsuit claims charging the late penalties as a flat rate violates California law because it is excessive and bears no relation to any actual damages when the rent is paid late.
In one case, a tenant paid a 760 percent annual interest rate after being charged a $50 late fee on the tenant's $1,200 rent, which was two days late. California law allows for a fixed applicable rate of 10 percent per year. Those terms would dictate a daily rate fee of about 33 cents, according to the lawsuit.
Equity also allegedly "stacks" the late fees, meaning that even if a tenant pays full rent on time, the tenant is charged a flat $50 or $100 late fee, even if the tenant's previous balance only consists of prior late fees.
In some cases, Equity allegedly subtracted the late fee from the fully paid rent, making it so the tenant is effectively still late on his or her payment. The company then allegedly charged additional penalties based on that unpaid amount, or on the penalty if that is all that remains unpaid. Tenants are not informed of their balance or Equity's policy, and tenants often are unaware that they have accrued additional late fees because the previous late fee was unpaid or because their rent payment was applied to the penalty, according to the lawsuit.
The landlord also allegedly charged "auto late fees" of $50 or more despite the tenants having made rental payments within the 5-day grace period. Equity allegedly assessed the penalty because the tenant owed as little as 55 cents for the City of East Palo Alto's administrative fee, which the landlord collects.
The lawsuit, Munguia-Brown v. Equity Residential, asks the court to declare Equity's actions in violation of the California Civil Code Section 1671 and California's Unfair Competition Law to bar the company from threatening or forcing the payment of illegal fees, and to order restitution of all late fees collected from the tenants. The tenants are represented by local nonprofit Community Legal Services in East Palo Alto and the Oakland-based law firm of Goldstein, Borgen, Dardarian and Ho, one of the oldest public-interest law firms in the country. The firm represents plaintiffs in complex and class-action lawsuits in employment discrimination, disability access, voting rights, environmental justice and consumer rights.
Rodriguez, one of the plaintiffs, paid her rent one day late in August 2012. She was allegedly charged a late fee of $50. On her rent of $1,000, this was an annual percentage rate (APR) of 1,824 percent, according to the lawsuit.
Munguia-Brown, a childcare worker raising three children in East Palo Alto, paid her complete rent and all fees one day early in March 2014. But she was allegedly charged an automatic $50 late fee because she had a balance consisting of $200 in previous late fees as well as $122 in city administrative fees and water and sewage charges. Munguia-Brown's lease does not explain that Equity will charge her a late fee if she has a balance from a previous month. She received no notice of the fees until June 2014, when her late-fee balance had accumulated to about $350, according to the lawsuit.
"Landlords are allowed to recoup reasonable costs associated with late rent, but are not allowed to profit from excessive late fees or stacking late fees," said Laura Ho, partner at Goldstein, Borgen, Dardarian & Ho. "Affordable housing is hard enough to find in many California cities without EQR unlawfully profiting off of their tenants who struggle to pay their rent."
The California Supreme Court and state legislature have maintained that late-fee penalties charged by landlords are usually unlawful because landlords are only entitled to simple interest of a few cents a day plus actual damages, if any, according to Megan Ryan, attorney at Goldstein, Borgen, Dardarian & Ho.
"It's time EQR and other big landlords stop profiting off of working class tenants by charging unfair late fees," Munguia-Brown said.
Equity representatives could not immediately be reached for comment.
Equity Residential owns or manages more than 25,000 rental units in California and is one of the nation's largest landlords, according to the suit.
The company was also sued by a group of tenants in April for allegedly failing to correct dangerous conditions and dozens of problems that resulted in severe mental distress and assaults that caused injuries and forced them to vacate the property.